Financial market report for January 19, 2011
EconomicPolicy Journal relates: “Citigroup is about to start putting its excess reserves to work. Citi had $190.4 billion in cash and deposits with banks at the end of 2010, a large chunk of this is likely sitting at the Fed as excess reserves. Citi built up a big pile of cash during the financial crisis and now plans to put this money to work making loans and repaying debt, Citi CFO John Gerspach said yesterday in a conference call. Will other banks follow Citi's lead in putting to use their excess reserves? That's a trillion dollars sitting on the sidelines.”
It’s very likely that an “inflation destruction” and “currency deflation” commenced a bear market today, January 19,2010, as the result of higher sovereign debt interest rates and a flattening 30 10 US sovereign debt yield curve, $TYX:$TNX, whose chart suggests that it has entered into and Elliott Wave 3 Down.
Inflation destruction and currency deflation will likely be driving stock prices lower in the “age of delveraging”, which commenced when the bond vigilantes sustained the Interest Rate on the 30 Year US Government Bond, $TYX, above 4.0%, when Ben Bernanke implemented QE2.
theyenguy defines inflation destruction as the fall in investment value that comes from inflation going over a threshold to threaten to job creation, social order, and food security. Once inflation destruction commences, in a nation it spreads like a virus and infects all stock asset classes globally, as is seen in the fall of investment value in China Materials spreading to US Coal Producers. Inflation destruction accompanies debt deflation. Both operate together to destroy all forms of fiat wealth and transition the world from an age of leverage and economic growth … and into an age of deleveraging and economic contraction. Thoughtful investors are those who invest in and take possession of gold and silver bullion.
Evidence of inflation destruction comes the chart of the 30 10 US Sovereign Debt yield curve, $TYX:$TNX, flattening, turning the gold mining stocks, GDX, lower with the 30 Year US Government Bond, EDV, in November 2010 immediately after the announcement of QE 2, and then in December with the failure of the European Leaders to come to a comprehensive solution of the European sovereign crisis, and then again in January 2011. Inflation destruction came to China Materials, CHIM, with the announcement of QE2, then again in early January 2011, and then again January 18, 2011, as inflation reports flooded the news.
Under QE 1, Ben Bernanke, committed a banking, financial and economic coup d'état trading out money good US Treasuries for all kinds of distressed securities held by the banks. The Fed’s Balance Sheet is approximated in value by the distressed securities mutual fund FAGIX which has doubled in value since the announcement of the TARP Facility. FAGIX, turned down 0.3% today. The Excess Reserves are best valued by the 10 to 20 Year US Government bonds, TLT or the 7 to 10 Year US Government bonds, IEF. These have experienced deflation since the announcement of QE 2 in early November at the hands of the bond vigilantes calling the Interest Rate on the 30 Year US Goverment Bond, $TYX, and the Interest Rate on the 10 Year US Government Bond, $TNX, higher, as QE 2 constitutes monetization of debt.
An appreciative mind notes that the too big to fail banks, RWW, were saved by Ben Bernanke, and have been marketplace recapitalized by both the marketplace and by the dollar liquidity rally of QE 2. So now with access to tens of billions of dollars, these banks can use their “money good” US Treasuries in Excess Reserves for investing.
If Citigroup, C, -7.2% this week, accesses and uses its reserves, I hope for their sake that they go short the markets, particularly short URTY. And for my sake, I hope that they go long gold, GLD, as this will increase the value of my portfolio, which is totally in gold bullion.
Can you imagine what might happen to the precious metal futures, JPP, if the recapitalized banks access and purchase gold and silver in the futures market place? It would make the crack up boom in these look like childs play. All I can say is “get ready for lift off”: inflation beyond what many have thought possilbe is coming to gold.
Base Metals, DBB, deflated 0.8% today with Lead, LD, -5.6%, Tin, JJT, -2.2%, Nickel, JJN, -2.1%, Copper JJC, -1.6%, and Aluminum, JJU, -0.3%
The stock markets traded lower today with Clean Energy, Metal Manufacturing, Agriculture, Small Cap Pure Value, and Coal Leading The Way Down:
Nasdaq Clean Energy, QCLN, -3.9%
Metal Manufacturing, XME, -3.5% with American Railcar Industries, ARII, -3.4% and Park Ohio Holdings, PKOH, -6.15
Agriculture, MOO, -3.0% with POT -3.9% and related fertilizer manufacturer Mosaic Co, MOS, -10.5%
Small Cap Pure Value, RZV, -3.0%
Mortgage Finance, KME, -2.9% with Newcastle Investment, NCT, -6.0% and iStar Financial, SFI, -2.5%
Russell 2000 Growth, IWO, -2.7%
Coal, KOL, -2.7% with Alpha Natural Resources, ANR, -3.9%, and Arch Coal, ACI, -2.8%,
Homebuilders, ITB, -2.7% with M/I Homes, MHO, -5.6%, and KB Homes, KBH, -4.4% and Lennar, LEN, -3.8%
Biotechnology, XBI, -2.6%
Russell 2000, IYM, .2.6%
Solar Energy, TAN, 2.6%
Semiconductor, XSD, -2.5%
Bank, KBE, -2.5%
Small Cap Technology, XLKS, -2.4%
Too Big To Fail Banks, RWW, -2.4% with Bank of America, BAC, -4.2%
Nano Technology, PXN, -2.4%
Steel, SLX, - 2.4% with Metalico, MEA, -7.8% and Schnitzer Steel, SCHN, -1.2% and US Steel, X, -5.9% suggesting that the US Dollar liquidity trade and US Dollar rally is now over as the US Dollar, $USD, fell 0.5%, to close at 78.58. It is likely that the US Dollar will go into sideways consolidation, and fall lower, with the major currencies, DBV, and the emerging market currencies, CEW; that is all currencies falling lower together at the hands of the currency traders carrying out competitive currency devaluation.
The Euro, FXE, rose 0.6% to close at 134.17.
Today’s fallers of note included China Materials, CHIM, -1.0%, and basic material leaders General Moly, GMO, -5.4, Headwaters, HW, -2.2%, Cliff Natural Resources, CLF, -4.0%, and office supplies leader Acco Brands, ACCO and textile leader Unifi, UFI.
The Morgan Stanley Cyclical Index, $CYC, fell 1.5%; its Automobile component, Ford, F, fell 4.3%. Its Basic Materials component, Freeport McMoRan Copper & Gold, FCX, fell 2.9%, and its Home Building component, Masco Corp MAS, fell 3.1%
Among the Internet stocks Amazon, AMZN, closed 2.3% lower from its rally high of 191; and, Google, GOOG, closed 1.2% lower from its rally high of 639; it now resides at the middle of a broadening top pattern that goes back to the week of October 8, 2007.
South Africa, EZA, -3.1% as the South Africa Rand, SZR, -0.8%.
Bonds, BND, rose 0.1% in a bear flag formation.